SFDR 2.0: are investment firms “off the hook”?

On 20 November 2025, the European Commission (EC) published its long-awaited proposals to revise the Sustainable Finance Disclosure Regulation (SFDR), commonly referred to as SFDR 2.0. One notable development: investment firms providing portfolio management and/or investment advice would no longer fall within the scope of the SFDR.

At first glance, this may sound reassuring: no more sustainability risk disclosures, no more light- and dark-green classifications, no more Principal Adverse Impact (PAI) statements, and no further SFDR-specific obligations.

But does this mean investment firms are effectively off the hook? It may appear so — yet we would argue otherwise.

Current status

First and foremost, the Commission’s proposal remains just that: a proposal. Whether it will be adopted in its current form remains uncertain. Despite the extensive consultation process that began in 2023, previous EU legislative processes in the ESG sphere have demonstrated that amendments can occur at a late stage.

Between the leaked draft of 6 November 2025 and the officially published proposal of 20 November 2025, several changes were introduced — although not in relation to investment firms. The decision to exclude investment firms from the scope of SFDR 2.0 therefore appears to be a deliberate policy choice.

If adopted, SFDR 2.0 is unlikely to enter into force before 2028 at the earliest. Until then, the existing SFDR framework remains fully applicable for investment firms.

MiFID II and sustainability preferences

No more SFDR obligations for investment firms? Good news, one might think. However, there remain several areas in which SFDR 2.0 will continue to be highly relevant — notably in relation to MiFID II sustainability preferences.

Under MiFID II suitability requirements, firms must currently ask clients whether they wish to invest in “sustainable investments” as defined under the SFDR. However, the definition of “sustainable investment” would disappear under SFDR 2.0. This means that the current framework for assessing sustainability preferences will require revision once the new regime enters into force.

There are, at present, no indications that the obligation to assess sustainability preferences will be removed altogether. It is more likely that the framework will be adapted. Although SFDR 2.0 does not expressly address MiFID II sustainability preferences, the proposal implies that these will need to be recalibrated, potentially by aligning client preferences with the three newly proposed product categories.

Investment firms will therefore need clarity as to when and how those preferences are met — particularly where client preferences must be matched against model portfolios or product offerings. A sound understanding of SFDR 2.0 will remain indispensable.

Ongoing sustainability obligations for investment firms

Under SFDR 2.0, transparency obligations concerning sustainability risks would cease to apply to investment firms. However, firms remain subject to Article 23 of the MiFID II Delegated Regulation and to the IFR/IFD framework, both of which require the integration of sustainability risks into (prudential) risk management policies and procedures.

In practice, this means sustainability risks must continue to form an integral part of firms’ internal risk management frameworks. Sustainability considerations therefore remain embedded in governance, procedures and day-to-day risk management.

Sustainability also plays a significant role in the management of conflicts of interest. Article 33 of the MiFID II Delegated Regulation requires firms, when identifying and managing potential conflicts, to take account of sustainability factors and clients’ sustainability preferences. Expertise in SFDR and sustainability risk will therefore remain relevant.

The SFDR will continue to underpin sustainability-related information at product level. Supervisory authorities expect investment firms not only to understand such information, but also to assess it critically.

Within the product governance framework — including the Product Approval and Review Process (PARP) — sustainability considerations must be embedded in both product design and distribution strategies. This includes documenting sustainability factors in policy frameworks, carefully assessing product characteristics, and preventing “grey” products from being distributed to clients seeking explicitly sustainable investments (mis-selling).

Product governance thus serves as the bridge between SFDR disclosures and MiFID II requirements relating to product development and distribution.

Moreover, sustainability claims must remain fair, clear and not misleading. Such claims must consistent with the underlying SFDR-based product disclosures.

Supervisory focus remains strong

For 2025 and 2026, the Dutch Authority for the Financial Markets (AFM) has explicitly identified sustainability and compliance with sustainability rules as supervisory priorities. In its ESG updates and supervisory agenda, the AFM has indicated it will focus, among other things, on:

• strict scrutiny of sustainability claims (ensuring they are fair, clear and not misleading);
• compliance with SFDR obligations;
• the role of product governance in relation to sustainable products; and
• suitability assessments, including sustainability preferences.

Supervisory expectations also extend to the broader customer journey. Firms are expected to ensure that websites, digital channels and client communications align with defined target markets and clearly explain the sustainability characteristics of products. This entails excluding products that do not fit sustainable investor profiles and actively monitoring to prevent mis-selling.

Taken together, the MiFID II obligations and the AFM’s supervisory priorities form a solid foundation for the sustainability framework with which investment firms will need to comply in the coming years.

So, are investment firms “off the hook”?

In our view, no.

Even if formally excluded from the scope of SFDR 2.0, investment firms will continue to operate in a regulatory environment where sustainability considerations remain deeply embedded. Knowledge of the proposed SFDR 2.0 framework will remain essential to the provision of investment services.

Firms remain bound by the MiFID II Delegated Regulation and the IFR/IFD framework, which explicitly require the integration of sustainability risks. Product governance obligations also remain fully applicable, requiring ongoing insight into the sustainability characteristics of the products firms advise on or manage.

Formally out of scope, perhaps. Substantively, still closely connected.